Seamless Parent Grubhub Buys Yelp’s Eat24 For Nearly $300 Million

Two years after trying to beat Grubhub in the local on-demand delivery space, Yelp has decided to sell its Eat24 unit to its former rival for for $287.5 million.

The deal was announced within Yelp’s Q2 2017 earnings report, which saw revenues rise 20 percent as placement on app unique devices grew 22 percent over last year to roughly 28 million on a monthly average basis.

Yelp acquired online food order service Eat24 for $134 million back in Feb. 2015, just as the the on-demand delivery space was taking off amid burgeoning competition from GrubHub and its subsidiary Seamless, as well as Postmates and UberEats, DoorDash, Caviar, and others.

Enveloping Eat24 into the Grubhub/Seamless network gives it access to 15,000 additional restaurants, not counting overlap, Wells Fargo analyst Peter Stabler pointed out in an analyst note. As part of the agreement, Yelp will get an unspecified affiliate fee for each Eat24 order funneled through the Grubhub system.

To put the arrangement in context — and as evidence of Grubhub’s scale — Eat24 would add 50,000 daily orders to Grubhub’s current 314,000.

Grubhub in action

Grubhub’s Local Delivery Dominance

Before the Eat24 deal, Grubhub has been carefully picking up smaller delivery platforms as it seeks to maintain its local dominance of restaurant takeout orders.

In June, Grubbub bought Boston-based Foodler, which is estimated to bring more than $80 million in sales from that city alone. That purchase was preceded by May 2016’s acquisition of Los Angeles delivery provider LAbite, which had $80 million in food sales in 2015, according to the WSJ’s report at the time.

It’s all part of series of rapid movements by Grubhub to shore up its presence on the local level. Just this past week, GrubHub said it would acquire 27 of Groupon’s OrderUp food delivery markets for an undisclosed sum, Marketwatch reported.

Grubhub’s “active diner growth” was up 26 percent compared in Q1, marking its highest growth rate since 2015 “and easily the most net Active Diners we have added organically in a quarter,” the company said during its analyst call in April.

To get a sense of its scale, Grubhub processed 324,600 orders (aka “Daily Average Grubs”) and nearly $900 million in related revenue during the quarter, for a 21percent increase year-over-year.

But the margins of the delivery businesses has remained low, even as restaurants have continued to adopt — or, in the view of some, acquiesce — to the notion of on-demand meal delivery.

For example, major brands like McDonald’s have sought to increase sales by signing on with UberEats in the New York area last month.

But the competition is intense, and it appears that platforms like UberEats are far from profitable.

Facebook and Amazon have also begun following Uber into the food delivery space. Given the ability of those companies to weather the low margins and the scale of their respective operations, the on-demand delivery space is particularly ripe for consolidation.

“We are among those who harbor concern about increasing competition from Uber and Amazon as potentially compromising GRUB’s growth,” Wells Fargo’s Stabler noted, referring to Grubhub by its stock symbol.

“We view each as having the required logistics expertise, substantial built-in marketing advantages via their large installed bases of highly engaged consumers, and deep resources,” Stabler added. “In terms of securing its leadership position, we believe GRUB’s best path is to expand its restaurant supply advantage and boost its traffic volumes. In our view, GRUB’s high repeat usage testifies to the strength of the GRUB product offering, and thus a more rapid build of a customer base represents the best possible defense against an intimidating set of competitors.”

If You Can’t Beat ‘Em… Affiliate!

For Yelp, this appears to be a case of “if you can’t beat ’em…” sell to them and ally with them.

The partnership has a term of five years, which is practically a lifetime compared to how long many of the on-demand delivery platforms in the space have existed. In addition to receiving an unspecified fee from Grubhub for every order made through Eat24, the two companies will also share marketing duties to promote Eat24 and maintain the brand’s presence as Amazon, Uber, Facebook, and standalone delivery and courier platforms seek to make inroads in the on-demand meal space.

During Grubhub’s Q1 2017 earnings call with analysts, CEO and Founder Matt Maloney said that the company sent $10 million in takeout orders to our more than 50,000 restaurant partners every day and generated close to 40 percent year-over-year revenue growth.

In many ways, Yelp has achieved one of the main purposes for buying Eat24: to expand the idea of the local guide as more than just a “reviews site” to a commerce and service platform connecting online, app-focused consumers with all neighborhood businesses from retail to healthcare.

The deal calls for Grubhub, which connects 55,000 restaurants with consumers in over 1,200 U.S. cities and London, will buy Yelp’s Eat24 business. At the same time, Yelp will integrate online ordering from all Grubhub restaurants onto its extensive local goods and services platform.

“Bringing Grubhub onto the Yelp Platform through this long-term partnership will be a win for everyone,” said Yelp CEO Jeremy Stoppelman, in a statement. Consumers get a high-quality end-to-end experience with a wider selection of restaurants and better delivery options.

“Restaurant partners receive increased online exposure and the opportunity for increased order volume, as well as expanded delivery support,” Stoppelman added. “Yelp and Grubhub benefit from greater scale and sharper operating focus. We expect Grubhub’s acquisition of Eat24 to create significant value for our consumers, restaurant partners and stockholders. The Eat24 team deserves credit for the transformational impact they’ve had as part of Yelp, and I’m pleased that we will continue to pursue this huge market opportunity in partnership with Grubhub.”

“Grubhub and Yelp, market leaders in their respective fields, have a shared mission of connecting consumers to local businesses,” says Grubhub’s Matt Maloney.

Maloney, in his statement called Grubhub and Yelp, market leaders in their respective fields, with a shared mission of connecting consumers to local businesses.

“With such complementary goals and strengths, Jeremy and I are excited to form a partnership that will allow each company to focus on its respective expertise, while working together to expand local e-commerce for diners and restaurants,” Maloney said. “Adding Eat24’s large diner base and thousands of restaurants to our platform will accelerate Grubhub’s mission to become the most comprehensive marketplace connecting takeout diners and restaurants. The long-term agreement ensures that Grubhub also has access to Yelp’s enormous user base and clear content leadership to help drive more diners to our restaurants.”

‘A Win For Everyone’

In attempting to make the case that the deal is indeed a “win-win for restaurants and diners, Grubhub and Yelp provided this outline:

Diners: Together, Grubhub and Eat24 will form the largest network of restaurants offering online and mobile food ordering in the United States. Diners will have the ability to discover and order from approximately 75,000 great local restaurants through either Grubhub’s or Yelp’s easy-to-use interface and take advantage of the industry’s lowest diner fees.

Grubhub: The combination of Eat24’s much-loved brand and significant reach will enable Grubhub to address more diners and drive more volume in all markets.

Yelp: The partnership adds tens of thousands of order-ready restaurants to the Yelp Platform and increases the availability of food delivery via Yelp, which will drive usage and transaction velocity in Yelp’s most highly-trafficked category.

Restaurants Wrestle With On-Demand

Restaurants have felt considerable pressure the past few years the sign on with the on-demand food delivery apps.

As Chris Brandt, the ‎EVP and chief brand officer at Bloomin’ Brands, — the corporate parent of casual dining franchises Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar — told us earlier this year, his primary competition isn’t other restaurants; it’s all the on-demand dining options consumers have available from their couch as they tap out orders on an increasing variety of smartphone delivery apps.

The question restaurants wrestle with is if people can have their food in the comfort of their own home — and save on beverages and other menu items typically driven by table-service — would they stop coming altogether?

When looking at individual categories like Quick Serve Restaurants and Casual Dining, the answer from a recent report by mobile data analytics provider Sense360, is complicated.

But for the most part, Sense360’s look into the connection between mobile-based food ordering and traffic to full-service restaurants and QSRs found no significant decrease in restaurant visits and in-store orders from customers who have downloaded third-party delivery apps.

“With delivery among the most watched business opportunities in the restaurant industry today, our findings tell an interesting story of both who delivery app users are, and that downloading such apps did not impact their in-restaurant visit behaviors and frequency,” Sense360 CEO Eli Portnoy told GeoMarketing at the time. “The data gives a clear and unequivocal view into this industry trend, provides clarity that restaurant operators and owners have been seeking to help them make the most informed and strategic business decisions.”